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Unreasonable director-related transactions

Similarly, to an uncommercial transaction claim, an unreasonable director-related transaction arises when a transaction is entered into by a director or close associate of the company, in circumstances where it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction. Again, the court has regard to the benefits and/or detriments to the company by entering into the transaction. Liquidators have the power under the Corporations Act 2001 (Cth) to avoid such transactions.

The main differences between an unreasonable director-related transaction and an uncommercial transaction claim is that:

  1. For an unreasonable director-related transaction to arise, a director or close associate must be involved;
  2. The transaction does not have to have been entered into when the company was insolvent – meaning the Liquidator does not need to go to the effort of proving insolvency; and
  3. The relation-back period is 4 years.

Elements of unreasonable director-related transactions – see our Voidables FAQ

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